When it comes to the listing of DraftKings on Nasdaq, Wall Street is all-in – and investors will now be looking for regulatory and market intelligence to track their heavy bets on a company valued at $9bn+ based on its closing stock price following the release of first-quarter earnings on May 15.
It’s no secret why DraftKings has attracted investor attention, despite its relatively modest revenues of some $323m in 2019 and an EBITDA loss of nearly $50m in the coronavirus-impacted first quarter of 2020.
Ever since the historic U.S. Supreme Court ruling of May 2018 overturning a federal ban on sports betting, investors have looked for a relatively clean way to play the expansion of a market VIXIO GamblingCompliance forecasts will be worth $6.2bn to $8.1bn in annual revenue by 2024.
U.S.-listed DKNG – with its top-two market share for online sports betting in New Jersey, Pennsylvania and Indiana and a database of millions of fantasy sports players across the country – provides that opportunity at scale, without the overhang of European market complexities that clouds rivals such as Flutter/FanDuel, GVC/BetMGM or William Hill.
If you believe the U.S. market for online sports betting and internet gaming will continue to expand, and you believe DraftKings can at least maintain the same kind of market-share as leading UK brands in their home market (for perspective, bet365 controlled 20 percent of the UK online sports betting market in 2018, according to VIXIO GamblingCompliance estimates), then DraftKings seems like a decent bet.
However, as has been the case ever since its origins in the spare bedroom of a Boston apartment, there are likely to be plenty of twists still to come in the DraftKings story, and more committed investors would be well advised to monitor several factors to help decide when to enter the field and when to stay on the sidelines.
While VIXIO GamblingCompliance currently projects the U.S. sports betting market to reach 35-42 states by 2024, our proprietary U.S. Sports Betting Data Dashboard allows stakeholders to constantly refresh precisely where and when they expect online and retail sportsbooks to be launched, instantly creating bespoke forecasts according to any number of regulatory scenarios.
The COVID-19 pandemic seems likely to be a double-edged sword, delaying legislative debate until 2021 in states such as Maryland, Missouri, Kansas and possibly Massachusetts, but causing state budget crunches that may galvanize discussions in major markets where the legal and lobbying landscape for sports wagering is nothing if not complex.
As we highlighted on a recent conference call with investment clients of Morgan Stanley, if anyone of California, Florida or Texas were to legalize online sports wagering under conditions favourable to DraftKings within the next few years, then that would provide significant upside to our overall market forecasts.
Market-Access & Illinois
DraftKings already has partnerships in place in 13 key states expected to have legal online sports betting within the next two to three years, according to VIXIO GamblingCompliance’s U.S. Sports Betting Partnership Tracker.
Still, the company has yet to announce a market-access deal for either Maryland or the pivotal state of Michigan.
And then there is the riddle inside an enigma that is Illinois, where current law restricts the use of non-casino-owned brands for online sports wagering, with just three standalone online licenses coming available after an 18-month wait at a cost of $20m apiece. As DraftKings CEO Jason Robins told VIXIO GamblingCompliance in an exclusive interview in February, “I’m hopeful that we’ll be able to be present in Illinois with our product in the future, but it’s too early to say exactly what it’s going to look like or even if it’s going to be possible.”
If states have been quick to embrace sports betting since May 2018’s landmark U.S. Supreme Court ruling, the rollout of online casino across America in the past decade has been much, much slower – with only Pennsylvania and recently Michigan passing legislation to join New Jersey as a needle-moving market opportunity.
The size of internet casino gaming markets relative to sports betting varies across different European countries, according to VIXIO GamblingCompliance data, but investors should note that online casino/poker accounts for 55-60 percent of overall revenue in the most mature markets such as the UK, Italy and Denmark.
Nobody can yet know for sure whether states will be keener to embrace online gaming as a result of the enforced shuttering of their land-based casinos due to the coronavirus.
But if sizeable states like Illinois and Indiana (which have already legalized online betting) or perhaps Ohio (which hasn’t) do start the next wave of iGaming expansion, then DraftKings is among the best positioned to capitalize.
50 States. 50 Regulatory Regimes
By now, investors will be well aware that there is no U.S. sports betting market per se; rather a matrix of state-specific markets with significant divergences in tax, permitted bet types, official data and dozens of other regulatory variables.
At the most fundamental level, in Oregon, DC and Rhode Island, only state lotteries are authorized to offer online sports betting, keeping out the likes of DraftKings at least as a B2C sportsbook brand.
In contrast, Tennessee and now Virginia are allowing direct licensing for online sportsbooks – a more favourable economic model for online operators who will not have to share revenue with a local partner. Notably, DraftKings has been lobbying for a similar approach in its home state of Massachusetts, seeking to make it the first casino state to adopt a European-style licensing framework.
VIXIO GamblingCompliance allows its subscribers to instantly build their own reports to compare any combination of states’ laws and regulations, condensing thousands of pages of legalese into easy-to-digest guides while identifying potentially market-defining policy trends nationwide.
International Lessons & Opportunities
Unlike the early days of European online gambling, the U.S. market is being built upon a foundation of high regulatory and compliance costs state-to-state.
Still, any analysis of the global online market cannot ignore the clear trend toward much tighter restrictions around responsible gambling and especially advertising in numerous countries that once welcomed liberalization but now suffer from a negative public perception of online betting. Can a policy trend that’s so evident across Europe and in Australia be avoided in the U.S.?
Then there is SBTech – DraftKings’ soon-to-be platform provider and already a B2B partner for other operators in U.S. and global markets.
VIXIO GamblingCompliance provides easy-to-understand guides to the legal regimes of the international jurisdictions where DraftKings now has an expanded presence through SBTech, allowing investors to contextualize debates over-regulated, grey and black markets, and evaluate opportunities in key markets such as Germany and Brazil.
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